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Transit Needs to Diversify Funding to Face Fiscal Headwinds

The fiscal challenges transit is facing are nothing new. To be financially resilient, transit agencies will need to rethink its funding options, and put more pressure on states to funnel federal cash.

Washington Metro station. The system includes six train lines and covers 118 miles.
Public transit should be looking for a more diverse mixture of funding sources to make agencies more financially resilient, those watching the space contend.

The COVID-19 pandemic exposed funding vulnerabilities, particularly among large transit systems like those in New York, San Francisco and Chicago that have relied heavily on fare revenue for support. When the pandemic kept workers home — and upended the daily commute for many office workers, possibly permanently — a key revenue source evaporated overnight.

“I think the broader issue that we’re running into is, transit agencies are going to face uncertainties into the future. We don’t exactly know which specific revenue source is going to challenge transit agencies the next time we have some sort of economic or social crisis,” said Yonah Freemark, one of the authors of the Urban Institute report Surmounting the Fiscal Cliff. The report was conducted in coordination with the TransitCenter, a transit policy think tank in New York City. Freemark was part of a webinar organized by the TransitCenter.

The research recalls previous challenges faced by the transit sector, like the Great Recession in 2008, which also took a toll on funding. During that event, it was sales tax funding that took the hit. To survive, agencies reduced service, which tends to start its own ‘doom loop’ with ridership loss. Ridership did not regain its footing until 2014, said Lindiwe Rennert, another author of the Urban Institute report.

More recently, the COVID-19 pandemic injected some $69.5 billion in transit as rescue funding to keep services afloat. That one-time money is coming to an end, leaving agencies to face significant headwinds, particularly those most dependent on fare revenue.

It’s not all bad news; there are some bright stories.

Smaller agencies serving cities of 500,000 residents or fewer have seen their ridership bounce back to more than 80 percent of pre-COVID levels, said Rennert. While cities with 2 million residents or greater, have seen a ridership recovery rate of only 66 percent.

In Washington, D.C., weekday bus ridership is close to pre-pandemic levels, said Randy Clarke, general manager and CEO of the Washington Metropolitan Area Transit Authority (WMATA). The service reaches 108 percent on weekends.

“Ridership is up. October was the best month since the pandemic,” said Clarke, during the webinar.

However, he added, “our funding is a big challenge. It’s an existential threat.”

“We have a structural funding issue at Metro,” said Clarke, pointing to Metro’s heavy dependence on fare revenue. “It needs to be resolved. We need to flip the script on this.”

Restructuring funding is presented as a solution to transit’s financial resiliency challenges. Researchers like Freemark and Rennert urge agencies to look to state government, which have fairly broad discretion around the use of federal transportation funding they receive.

“I think that in every community, there are options to look at state government,” said Freemark. “In every state across the country we should be asking whether the state government is doing as much as it can to devote its own funds, or federal funds, for public transportation. If it’s not doing that, we should be asking why.”

Also, local ballot measures targeting transit improvements have historically been successful. Earlier this week, voters in Kansas City, Mo., overwhelmingly approved a measure to extend a local sales tax another decade to fund the region’s transit system.

“The truth is, most of the ballot measures that go up to increase taxes for transit, actually succeed,” said Freemark. “So you’re making a good choice if you’re advocating for that.”

Transit funding ought to be viewed as a multi-county or regional initiative, since this is the scale transit makes the largest impact on the local economy and regional transportation planning, said Rennert, adding that it "should also be the scale at which transit receives its greatest funding source.”

Another source of funding could be to tax auto use in the form of a tax placed on vehicle miles traveled (VMT), congestion pricing or vehicle registration charges.

“We’ve got to get states to care about this issue,” said Freemark. “Because they hold, really, the most opportunity in terms of financial resources. And I hope that we can make more of a movement in the direction of getting more state support for transit.”
Skip Descant writes about smart cities, the Internet of Things, transportation and other areas. He spent more than 12 years reporting for daily newspapers in Mississippi, Arkansas, Louisiana and California. He lives in downtown Yreka, Calif.